Cuba: Boards Must Assess the Short- and Long-Term Business Benefits

Experts advise both caution and a long-term viewpoint for those business leaders who believe they can make a case for going into Cuba. At the same time, companies that strike first will be able to take advantage of some early opportunities – and express confidence in Cuban leadership that the host country is sure to appreciate.

The number of attractants for Cuban investment are growing. In addition to inviting the American president and a handful of other companies to become trailblazers in the country, Cuban authorities have decided to drop the 13-percent surcharge on converting U.S. dollars to Cuban currency.

“The immediate and short-term challenge in doing business in Cuba is the continued Castro-inspired bureaucracy with its byzantine regulations, which are open to interpretation regardless of an American firm’s cooperative conduct.”

Also, Cuba may be more ready than even a year or two ago to tilt toward American investment because one of its biggest sovereign supporters, Venezuela, has fallen on hard times because of the plunge in oil prices.

Travel, tourism, telecommunications, financial services and food exporters “have the potential to gain the most in the short term” by going into Cuba, said a Wharton School analysis. For the longer term, the top-flight business school said, “Washington-Havana rapprochement also opens up the chance” for construction and real estate, energy production and mining, manufacturing and retail, pharmaceuticals and biotechnology, and agriculture.

If a board member taps out a call to her CEO tomorrow and inquires about Cuba, they’ll both have to understand that “the immediate and short-term challenge in doing business in Cuba is the continued Castro-inspired bureaucracy with its byzantine regulations, which are open to interpretation regardless of an American firm’s cooperative conduct,” said Albert Goldson, executive director of Indo-Brazilian Associates, a global advisory firm.

Among other drags remaining in Cuba are a dual currency system and a labor system that requires contract with with a state-owned employment agency, noted Larry Pascal, chair of the Americas practice group for law firm Haynes and Boone.

Maybe setting up “a modest representative office” at first, and establishing some Cuban business partners, should be first steps, Goldson advised. “Until a new, younger leadership takes control, the growth of American business in Cuba will be severely limited.”

And, added Pascal, foreign investors must “be prepared to articulate and defend how the investment is likely to have a positive social effect” above and beyond the mere creation of employment in Cuba. Ensuring social stability and equality remain “top priorities” of the Cuban government, he said.

In fact, companies “should conduct a full risk-based legal analysis before embarking on any transaction involving Cuba, said Elsa Manzanares, co-chair of the international trade group at law firm Gardere Wynne Sewell. Potential risks include provisions of the Foreign Corrupt Practices Act.

Yet, the very decrepit nature of the Cuban economy, on the largest island in the Caribbean, creates many potential opportunities for American companies.

“Crumbling infrastructure,” said University of Maryland Business Professor Kislaya Prasad, who recently visited Cuba to assess the business climate, “could be an opportunity for many companies.” Internet penetration is low, for instance, and farm machinery and automobiles have been in service there for many decades. Yet Cuba “has a very educated workforce and health are is relatively advanced.”

In the coming post-Castro Cuba, Prasad said, “The Communist Party and its younger leadership will still be a significant force, but hope is that as free enterprise – if not political openness – takes root, and reforms deepen, we will be on an irreversible course.”